quarterly report - key petroleum€¦ · unconventional shale oil and gas projects. key’s model...

QUARTERLY REPORT FOR THE PERIOD ENDED 31 MARCH 2013

ACN 120 580 618

Ground Floor 39 Stirling Highway Nedlands WA 6009

T: + 61 (08) 6389 0322 F: + 61 (08) 6389 0697

[email protected]

2

Coring the Goldwyer Formation at Cyrene-1, Canning

Basin, Western Australia in February 2013

Cyrene-1 at sunrise during the testing of the Willara

Formation, Canning Basin, Western Australia

UPDATES ON PETROLEUM EXPLORATION ACTIVITIES FOCUS AND STRATEGY FOR THE QUARTER

Since 2012 Key Petroleum Limited (“Key”) has

made significant management and strategic

changes to the Company with a shift away from

minority equity positions in low impact international

assets to a strategy of focused onshore Australian

based exploration.

New venture opportunities both onshore and

offshore will only be pursued where the Board has

confidence that Key can satisfy the following two

criteria:

Key can be Operator to control exploration costs and best utilise shareholder capital reserves; and

Conduct exploration in sedimentary basins where the potential sizes of the discovery have a high rate of return to shareholders.

This renewed focus in onshore Australia resulted in

the United Kingdom, Italy, Tanzania and Suriname

interests being divested to reduce administrative

overheads and instead focusing capital on projects

in the Canning and Perth Basins, Western

Australia.

In December 2012, Key assumed the Operatorship

from Buru Energy Limited for the purpose of drilling

the Cyrene-1 exploration commitment well in EP

438, Canning Basin. Drilling commenced in

January 2013 to a total depth of 1060 metres.

Continual hydrocarbon shows were encountered

throughout the Goldwyer and Willara formations.

The conventional Willara Formation carbonate

interval was found to be tight (unable to flow

naturally) on test.

Key is now the first modern day Operator in the

Canning Basin to core a section of Goldwyer

Formation with heavy hydrocarbon indications up

to C6+ with continual hydrocarbon indications in

mud gas across a significant section of Goldwyer

Formation in the Canning Basin.

3

In March Key attended the APPEX Conference

(American Association of Petroleum Geologists) in

London. The aim of the conference was to source

suitable Farmin partners for further exploration

programs within the Canning and Perth Basins.

The conference was well attended with a packed

house at the address by Key on the Canning Basin

and the Company’s strategic acreage position in

the Kidson Sub-Basin and Permit EP 448.

Small, independent and major operating oil

companies had the opportunity to not only discuss

commercial opportunities and deal flows but share

information on recent activities in the Canning

Basin and insights from other international

unconventional shale oil and gas projects. Key’s

model that the EP 448 area and the acreage to the

south held by Hess is in the liquids rich fairway

was supported by large exploration companies

attending the conference.

The Company is now entirely focused on its Perth

Basin and Caning Basin work commitment

programs from the capital reserve of nearly $3.7

million.

Activities for the next quarter:

Working towards gaining compliance approvals from the Department of Mines and

Petroleum (DMP) and land access agreements for the EP 437 exploration well, Waugh-1

(Q3 Estimate)

Incorporating the full suite of data from Cyrene-1 into the EP 438 geological model and

into Key’s Caning Basin regional geological model including EP 448

Undertaking a technical review of the exploration potential for conventional and

unconventional gas plays of the Anderson Formation in the EP 104 area

Meet with the Nyangumarta traditional owners in June to discuss exploration activities in

EP 448 for 2013/14 and gain access pursuant to the EP 448 Heritage Protection

Agreement

Scout areas for road, air strip and drilling locations for 2014 exploration drilling

Undertake Heritage and Environmental Surveys in the southeast part of EP 448 as part of

approvals required for the 2013 geochemical survey and 2014 exploration drilling activities

Executing the geochemical soil survey in EP 448, Canning Basin after gaining DMP

approvals, focusing around the Ambrose unconventional prospect to assist in fine tuning of

well locations and identifying further conventional prospects

Director Ian Paton presenting at the APPEX Conference (top) and talking to interested international companies in Key’s conference booth (bottom) in March 2013.

4

Lowering the core from the Goldwyer Formation into position for cutting,

analysis and logging.

EXPLORATION PROGRAM 2013

Key has a number of permits within the Canning and Perth Basin’s in Western Australia.

Currently a Farmin Partner is being sought to drill a well in EP 448, Canning Basin. Both

Heritage and Environmental Surveys are required to be undertaken in order to gain approvals

for a geochemical survey within EP 448, which will assist in identifying further conventional

prospects for drilling as well as assist in the refinement of well locations.

The EP 448 permit already includes several conventional structures and stratigraphic leads

identified on trend with the unconventional Ambrose prospect within both the Nita Formation

and Goldwyer Formation. Other possible prospects already drilled in this permit have included

Nicolay-1 by New Standard Energy in the adjacent acreage.

Drilling of the Waugh-1 well within EP

437, Perth Basin is dependent on

land access in addition to

environmental, safety and petroleum

division approvals by the DMP.

Revisions have been made to

approval documents and have now

been resubmitted. Due to the

uncertainty on both land access and

timing of approvals from the DMP, the

spud date for Waugh-1 is not known

at this stage but is now expected in

Q3, 2013.

Permits EP 104, EP 438, R1, and L15

are currently under a geological and

geophysical technical review with a

focus on drilling potential structural

stratigraphic plays in 2015 in EP 104.

Key is awaiting the results of the

Cyrene-1 core analysis from Operator

Buru Energy in order to determine a

suitable renewal programme for EP

438 and whether there has been any

substantial de-risking of additional

prospects within the permit.

At present, Key is evaluating new

opportunities to complement its existing portfolios of exploration interests within Australia, which

are not limited to the Canning and Perth basins. These opportunities will only be pursued if they

are in line with criteria previously outlined at the Company’s Annual General Meeting.

5

EP438, Canning Basin, WA

Managing Director Kane Marshall (left) overseeing the

testing of the Willara Formation at the Cyrene-1 well in

February 2013.

EP 438, CANNING BASIN, WESTERN AUSTRALIA

KEY PETROLEUM LIMITED (GULLIVER PRODUCTIONS PTY LTD) 20.0% BURU ENERGY LIMITED (OPERATOR) 37.5% MITSUBISHI CORPORATION (DIAMOND RESOURCES (CANNING) PTY LTD) 37.5% INDIGO OIL PTY LTD 5.0%

The Cyrene-1 commitment well in EP 438,

Canning Basin was spudded on 21 January

2013 using DCA Rig 7. Key, as Operator for the

well, drilled Cyrene-1 to a total depth of 1060

metres penetrating the Goldwyer and Willara

Formations to test its conventional

prospectivity.

Hydrocarbons were present throughout the

drilling of Cyrene-1 and the well intersected a

thick section of Goldwyer Shale at 915 metres.

A number of cores were extracted for analysis.

Key is the first modern Operator in the Canning

to core a section of Goldwyer with heavy

hydrocarbon indications across the shale.

The results of the coring indicate that the

Goldwyer Shale is in the oil generating window

at the Cyrene location. It also confirms that

regionally the Goldwyer Shale has excellent oil

and gas prospectivity unconventionally.

According to the US Energy Information Agency

the Goldwyer was identified as the major

unconventional play in the Canning Superbasin

with potential estimated recoverable resources

of 229 trillion cubic feet of gas and billions of

barrels in oil.

The cores are currently undergoing further

analysis for organic carbon content, maturity for

hydrocarbon generation throughout the

Canning Basin and oil generative capacity by

Operator Buru Energy Limited.

The targeted Willara Formation and

conventional oil target was drilled as prognosed

but no oil flow or reservoir development was

observed from a drill stem test. The decision

was made by the joint venture to plug and abandon the well with the focus to remain on the

Goldwyer data set for assessing and understanding the unconventional opportunity in EP 438.

The completion of drilling operations at Cyrene-1 concluded in late February 2013.

6

EP448, Canning Basin, WA

EP 448, CANNING BASIN, WESTERN AUSTRALIA

KEY PETROLEUM LIMITED (GULLIVER PRODUCTIONS PTY LTD) (OPERATOR) 78.0% INDIGO OIL PTY LTD 22.0%

In late 2012 a variation was granted by the DMP to original work commitments for well pre-

planning and a Geochemical Survey in EP 448, Canning Basin. The approval resulted in a

substantial cost saving against the original 500km 2D seismic survey commitment that was

planned.

The revised Geochemical Survey will assist in identifying and grading conventional prospects

within the permit, which consist of a stratigraphic pinch-out and fault dependent closures at the

Nita Formation objective. The Survey will also assist in ascertaining the extent of coverage of

the Ambrose shale prospect. The data will then be used to assist in the planning and

construction of roads, drilling locations and an airstrip infrastructure, which may be required to

drill up to two wells next year.

During the quarter, United Oregon Limited withdrew from the EP 448 joint venture resulting in

an increase to the interests to the remaining joint venture participants (Key and Indigo Oil Pty

Ltd).

Prospect Information

Recent integration of data from the Goldwyer

Formation in Cyrene-1 and the existing source

rock maturity data from Frankenstein-1 and

Munro-1 wells have enabled a model of the

large Ambrose structure to be constructed. The

unconventional prospect appears to be in the

liquids rich gas-condensate to oil fairway.

In 2012 North American company Hess

acquired acreage to the south of EP 448 on

trend with the 10 mapped conventional leads

and the large Ambrose unconventional

prospect.

The Nicolay-1 exploration well drilled by New

Standard Energy Limited last year, some 40km

east, was reported to only have minor dry gas

indications in mud gas. This suggests that the

Goldwyer Formation source rocks have been

exposed to hotter temperatures and are subject

to a mature hydrocarbon generation in the form

of dry gas.

Discussions with independents and major companies at the APPEX Conference in London this

year indicate that the acreage on trend with EP 448 taken up by Hess is in the liquids rich

fairway.

7

EP437, Perth Basin, WA

EP 437, PERTH BASIN, WESTERN AUSTRALIA

KEY PETROLEUM (AUSTRALIA) PTY LTD 50.0% EMPIRE OIL COMPANY (WA) LIMITED (OPERATOR) 35.0% CARACAL EXPLORATION PTY LTD 15.0%

Exploration and drilling of the EP 437 prospect Waugh-1 is required prior to May 2013 to meet

the work commitments of the permit. The proposed well is located up-dip from Dunnart-1 and is

planned to be drilled to a total depth of 750 metres. Indicative potential prospective recoverable

reserves are estimated to be in the order of 3-5 MMBO.

The Joint Venture has begun preparations for drilling. This has included liaising over the

availability of DCA Rig 7 and continuing negotiations with the landowner. Approvals from the

DMP are still outstanding despite revisions

that have been recently submitted.

Recent re-mapping and interpretation by the

EP 437 Joint Venture have identified up to

nine prospects within the Bookara

Sandstone.

Prospect Information

The Waugh structure is a seismically defined drillable oil prospect in the Onshore North Perth Basin.

The Structure is a tilted fault block defined by seven seismic dip lines and one strike seismic line.

The Dunnart well drilled on this structure encountered elevated methane readings while drilling through the Coaly Unit of the Cattamarra Coal Measures and recorded excellent oil shows while drilling through the Bookara sandstone. Neither of these shows was tested.

The Early Triassic Bookara Sandstone is sealed by thick marine shales of the

Kockatea Shale (which are 112 metres thick at Dunnart-1) and sourced by the organic rich shales at the base of the Kockatea Shale. The potential for gas is also present in the Coaly Unit of the Cattamarra Coal Measures. The main source rocks are the marine shales in the basal part of the Kockatea Shale which is one of the major oil prone rocks in the Northern Perth Basin. The basal Kockatea Shale is up to 50 metres thick on the downthrown side of the Allanooka Fault and is interpreted to be in the oil generation window.

Re-mapping by the Joint Venture of the Waugh prospect has also identified an up-dip well

location (possible Waugh-2), which may be drilled upon an oil discovery at Waugh-1.

8

OTHER BUSINESS

The Company has now officially launched its new website and rebranding following significant structural changes to the company over the last twelve months. The website is being continually updated to assist investors with following the Company’s corporate and exploration activities. A new timeline milestone will be implemented onto the site to provide the approximate timing of exploration activities in addition to a media gallery of photos and video footage.

Commenting on the quarter’s activities, Managing Director Kane Marshall stated:

“The last quarter’s activities for Key have been the most hectic and intensive period in the Company’s

history. This has included operational exploration activity, technical review and mapping of additional

prospects within the existing asset portfolio and the planning of the remaining 2013 exploration

campaign. Corporately the Board has been looking at de-risking several of Key’s prospects via Farmout.

Within this framework the technical team has also been evaluating new business opportunities

consistent with what the Board outlined in last year’s general meetings. This is an exciting time for the

Company as we have sufficient capital to fund the remaining 2013 exploration activities and several

other projects with growth potential as Key progresses as an emerging exploration and development

company domestically in Australia. The Board is grateful for the ongoing support and patience from its

shareholders and looks forward to providing more positive news on its activities over the course of 2013

and well into 2014.”

KANE MARSHALL

BSc (Geology), BCom (Inv & Corp Fin), Masters PetEng, AAPG, SPE, PESGB, SPWLA

MANAGING DIRECTOR

Dated: 30th April, 2013 Perth, Western Australia COMPETENT PERSONS STATEMENT Information in this ASX Release relates to exploration results that are based on information compiled by Mr Kane Marshall who is a full time employee of Key Petroleum Limited. Kane Marshall is a Practicing Petroleum Engineer and holds a BSc (Geology), BCom (Inv & Corp Fin) and Masters in Petroleum Engineering.

Appendix 5B

Mining exploration entity quarterly report

+ See chapter 19 for defined terms.

17/12/2010 Appendix 5B Page 1

Rule 5.3

Appendix 5B

Mining exploration entity quarterly report Introduced 01/07/96 Origin Appendix 8 Amended 01/07/97, 01/07/98, 30/09/01, 01/06/10, 17/12/10

Name of entity

Key Petroleum Limited

ABN Quarter ended (“current quarter”)

50 120 580 618 March 2013

Consolidated statement of cash flows

Cash flows related to operating activities

Current quarter

$A’000

Year to date

(9 months)

$A’000

1.1 Receipts from product sales and related debtors

- -

1.2 Payments for (a) exploration & evaluation

(b) development

(c) production

(d) administration

(571)

-

-

(271)

(718)

-

-

(712)

1.3 Dividends received - -

1.4 Interest and other items of a similar nature

received

11 33

1.5 Interest and other costs of finance paid - -

1.6 Income taxes paid - 10

1.7 Other (provide details if material) - (9)

Net Operating Cash Flows

(831)

(1,396)

Cash flows related to investing activities

1.8 Payment for purchases of: (a) prospects

(b) equity investments

(c) other fixed assets

-

-

-

-

-

(17)

1.9 Proceeds from sale of: (a) prospects

(b) equity investments

(c) other fixed assets

-

216

-

-

278

-

1.10 Loans to other entities - -

1.11 Loans repaid by other entities - -

1.12 Other (provide details if material) - -

Net investing cash flows

216

261

1.13 Total operating and investing cash flows

(carried forward)

(615)

(1,135)

Appendix 5B



Appendix 5B Page 2 17/12/2010

1.13 Total operating and investing cash flows

(brought forward)

(615)

(1,135)

Cash flows related to financing activities

1.14 Proceeds from issues of shares, options, etc. - 3,988

1.15 Proceeds from sale of forfeited shares - -

1.16 Proceeds from borrowings - -

1.17 Repayment of borrowings - -

1.18 Dividends paid - -

1.19 Other (provide details if material) - (609)

Net financing cash flows - 3,379

Net increase (decrease) in cash held

(615)

2,244

1.20 Cash at beginning of quarter/year to date 4,313 1,461

1.21 Exchange rate adjustments to item 1.20 - (7)

1.22 Cash at end of quarter

3,698

3,698

Payments to directors of the entity and associates of the directors

Payments to related entities of the entity and associates of the related entities Current quarter

$A'000

1.23

Aggregate amount of payments to the parties included in item 1.2

(110)

1.24

Aggregate amount of loans to the parties included in item 1.10

-

1.25

Explanation necessary for an understanding of the transactions

Item 1.23 includes aggregate amounts paid to directors including salary, directors’ fees, and

superannuation.

Non-cash financing and investing activities

2.1 Details of financing and investing transactions which have had a material effect on consolidated

assets and liabilities but did not involve cash flows

2.2 Details of outlays made by other entities to establish or increase their share in projects in which the

reporting entity has an interest

Appendix 5B




Financing facilities available Add notes as necessary for an understanding of the position.

Amount available

$A’000

Amount used

$A’000

3.1 Loan facilities

- -

3.2 Credit standby arrangements

- -

Estimated cash outflows for next quarter $A’000

4.1 Exploration and evaluation

(550)

4.2 Development

-

4.3 Production

-

4.4 Administration

(250)

Total

(800)

Reconciliation of cash

Reconciliation of cash at the end of the quarter (as

shown in the consolidated statement of cash flows) to

the related items in the accounts is as follows.

Current quarter

$A’000

Previous quarter

$A’000

5.1 Cash on hand and at bank 3,698 4,313

5.2 Deposits at call - -

5.3 Bank overdraft - -

5.4 Other (provide details) - -

Total: cash at end of quarter (item 1.22) 3,698 4,313

Changes in interests in mining tenements Tenement

reference

Nature of interest

(note (2))

Interest at

beginning

of quarter

Interest at

end of

quarter

6.1 Interests in mining

tenements relinquished,

reduced or lapsed

EP438

Reduced due to satisfaction

of Buru Energy Limited

farmin agreement

75%

20%

6.2 Interests in mining

tenements acquired or

increased

EP448 Increase due to withdrawal

of United Oregon Limited 70% 78%

Appendix 5B




Issued and quoted securities at end of current quarter Description includes rate of interest and any redemption or conversion rights together with prices and dates.

Total number Number quoted Issue price per

security (see note

3) (cents)

Amount paid up per

security (see note 3)

(cents)

7.1 Preference +securities (description)

7.2 Changes during

quarter

(a) Increases

through issues

(b) Decreases

through returns

of capital, buy-

backs,

redemptions

7.3 +Ordinary

securities

450,509,417

450,509,417

7.4 Changes during

quarter

(a) Increases

through issues

(b) Decreases

through returns

of capital, buy-

backs

7.5 +Convertible

debt securities

(description)

7.6 Changes during

quarter

(a) Increases

through issues

(b) Decreases

through

securities

matured,

converted

7.7 Options (description and

conversion

factor)

7,000,000

7,000,000

7,000,000

2,000,000

2,000,000

2,000,000

500,000

Exercise price

5.5 cents

6.4 cents

7.4 cents

4.4 cents

5.2 cents

5.9 cents

2.5 cents

Expiry date

06/08/2017

06/08/2017

06/08/2017

06/08/2017

06/08/2017

06/08/2017

12/03/2017

Appendix 5B




7.8 Issued during

quarter 500,000

Exercise price

2.5 cents

Expiry date

12/03/2017

7.9 Exercised during

quarter

7.10 Expired during

quarter

7.11 Performance

Rights

3,250,000

3,250,000

Performance

Rights A

Performance

Rights B

7.12 Issued during

quarter

7.13 Exercised during

quarter

7.14 Expired during

quarter

7.15 Debentures

(totals only)

7.16 Unsecured

notes (totals

only)

Appendix 5B




Compliance statement

1 This statement has been prepared under accounting policies which comply with

accounting standards as defined in the Corporations Act or other standards acceptable

to ASX (see note 5).

2 This statement does /does not* (delete one) give a true and fair view of the matters

disclosed.

Sign here: Date: 30 April 2013

(Managing Director)

Print name: John Lloyd Kane Marshall

Notes

1 The quarterly report provides a basis for informing the market how the entity’s

activities have been financed for the past quarter and the effect on its cash position.

An entity wanting to disclose additional information is encouraged to do so, in a note

or notes attached to this report.

2 The “Nature of interest” (items 6.1 and 6.2) includes options in respect of interests in

mining tenements acquired, exercised or lapsed during the reporting period. If the

entity is involved in a joint venture agreement and there are conditions precedent

which will change its percentage interest in a mining tenement, it should disclose the

change of percentage interest and conditions precedent in the list required for items

6.1 and 6.2.

3 Issued and quoted securities - The issue price and amount paid up is not required in

items 7.1 and 7.3 for fully paid securities.

4 The definitions in, and provisions of, AASB 6: Exploration for and Evaluation of

Mineral Resources and AASB 107: Statement of Cash Flows apply to this report.

5 Accounting Standards ASX will accept, for example, the use of International

Financial Reporting Standards for foreign entities. If the standards used do not

address a topic, the Australian standard on that topic (if any) must be complied with.

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quarterly report - key petroleum€¦ · unconventional shale oil and gas projects. key’s model...

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